New Jersey is the latest in a short but growing list of states that tax postage.
Mailing service providers in New Jersey began paying at least 7 percent more in postage-related costs Oct. 1. The state legislation, passed quickly in July, was tied to a provision of the national Streamlined Sales and Use Tax Agreement that lets states include fees and postage in the taxable sales price. Providers likely will pass some of the cost to their customers.
“The SSUTA is going to continue to be bad news for mailing service providers and rate payers unless something is done to alter how the SSUTA is applied to postage,” said Leo Raymond, director of postal affairs for the Mailing and Fulfillment Service Association , Alexandria, VA. “The industry needs to work together on this.”
But hope is on the horizon. Melanie Hill, a sales tax expert with Dow Lohnes Price Tax Consulting LLC in Greenville, SC, said she identified the postage-tax issue for the printing and mailing industries several years ago, “but the [SSUTA] Governing Board did not legally come into existence until last November. Now the industry is in a position to get a ruling on the taxation of postage and have it resolved.”
States may tax postage as a result of an optional provision in the SSUTA, which was approved by the Streamlined Sales Tax Project, an effort that began in 2000 to simplify and modernize sales and use tax collection and administration by the states.
Though the SSUTA’s provisions let each state select what it taxes, each state must adopt the same definitions. For example, “sales price” is defined the same in every SSUTA state. But each state can choose from various options what it will tax, such as delivery charges.
Generally, states that adopted the provision to tax delivery charges collect the tax from printers, lettershops and consolidators that use their postal permit number or postage meter on behalf of their customers.
Charges for the delivery of goods and services were not subject to sales tax in New Jersey prior to Oct. 1. The new state law modified the exemption for delivery charges, providing for taxation of delivery charges on taxable items and retaining the exemption for delivery charges on nontaxable items.
The sales tax is imposed on sales of direct mail material as well as direct mail processing services and postage. An exemption exists for direct mail material and processing services related to the portion delivered to out-of-state recipients.
However, for direct mail processing services where the property is delivered to a location in New Jersey, the postage expense is part of the taxable receipt, regardless of whether it is separately stated to the customer. Since delivery charges refer only to charges made by the seller of goods and services, the purchase of postage directly from the U.S. Postal Service remains nontaxable.
New Jersey is not the only state charging sales tax, Mr. Raymond said, “but it is the most visible. What was also interesting was that the law was passed in two days.”
The SSUTA was implemented by 19 states, most of which accepted the optional postage-tax provision. But many other states are considering adopting the overall agreement because they view it not only as a means to simplify their tax codes but also as a silent way to increase total tax revenue collections.
Mailing service providers fear that if the provision is implemented in their state, their customers will switch to printers and mailers in nearby states that do not charge the tax. Some mailing services firms are considering relocating to states that do not tax postage.
“The adjacent states of New York and Pennsylvania do not impose sales tax on postage, and Delaware has no sales tax, period,” Mr. Raymond said. “Being in the congested Northeast, those and other not-too-distant neighboring states offer easy alternative venues for the production and entry of mail, putting New Jersey’s mailing service companies at a distinct disadvantage.”
Relocation of mailing activity out of New Jersey would hurt not only the state’s mail shops and their employees but also the businesses that support such activity, including printers, suppliers and transportation companies, he said.
The USPS may need to take note as well.
“Aside from the potential absolute loss of mail volume as clients see the 7 percent hit as the last straw, post offices and postal districts in New Jersey may see volume and revenue slip as local mailers’ clients move their business,” Mr. Raymond said.
Ms. Hill thinks the problem can be resolved easily as a matter of administrative interpretation.
“Most state tax administrators … don’t realize that the postal service requires a principal-agency relationship for bulk mail to be entered into the mailstream by a mailing service provider,” she said. “Once they realize this relationship, I would hope the states will recognize agency law and not impose a sales tax on the reimbursement of postage purchased by an agent on behalf of its principal.”
Sidebar: Coalition forms against postage tax
A direct mail coalition has formed to address the postage-taxation issue by promoting business-friendly interpretations to the Streamlined Sales and Use Tax Agreement’s Governing Board.
The group was formed by Melanie Hill of Dow Lohnes Price Tax Consulting Group, Greenville, SC. Founding members include Gene Del Polito of the Association for Postal Commerce, Mark Micali of the Direct Marketing Association, Leo Raymond of the Mailing and Fulfillment Service Association and Lisbeth Lyons of the Printing Industries of America/Graphic Arts Technical Foundation. More information is on the coalition Web site at www.dlptax.com/ssta.
The group aims to stop the taxation of pass-through postage of mailing services when stated separately from printed material sales.
The coalition’s strategy:
* Submit to the SSUTA Governing Board a proposed ruling that postage purchased by a mailing agent is not subject to sales tax.
* Coalition members will meet with each state on direct mail issues.
* Educate and recruit members to the coalition to represent the direct mail industry.
Ms. Hill can be reached at [email protected] or 864/241-2001.
Sidebar: Which states tax postage?
Eight SSUTA full member states tax postage as of Oct. 1, according to Dow Lohnes Price Tax Consulting Group: Indiana, Kansas, Kentucky, Nebraska, New Jersey, North Dakota, Oklahoma and West Virginia.
Five member states do not tax postage: Iowa, Michigan, Minnesota, North Carolina and South Dakota.